Economic activity within the manufacturing sector experienced a contraction in May for the third consecutive month, as reported by the Institute for Supply Management (ISM). Following a two-month expansion, this decline comes after a lengthy phase of 26 months of contraction prior to that brief uptick. The Manufacturing Purchasing Managers’ Index (PMI) registered 48.5%, slightly down from April’s 48.7%, indicating a continued reduction in manufacturing activity. A PMI reading below 50% typically signals a contraction in the sector.
The New Orders Index fell for the fourth month in a row with a reading of 47.6%, though it did show a slight improvement compared to April. The Production Index, while still in contraction territory, increased to 45.4%, suggesting that while factory output remains subdued, there’s potential for cautious optimism as it signals an easing of the rate of decline. The Employment Index also rose marginally to 46.8%, indicating ongoing challenges in job growth, but some industries reported a stabilization in employment levels.
Notably, the Supplier Deliveries Index continued to show slower delivery times at 56.1%, often a sign of increasing demand, which may be related to ongoing challenges with tariffs and supply chain disruptions. The Prices Index remained high at 69.4%, reflecting persistent inflationary pressures in raw materials and inputs, which also highlights a paradox within the sector where demand remains subdued yet prices are on the rise.
Interestingly, the Customers’ Inventories Index reported low levels, suggesting that manufacturers might benefit from future production increases as a ‘too low’ inventory status is sometimes seen as a precursor to expanded output. Furthermore, a few industries did show positive movement; specifically, the Petroleum & Coal Products and Machinery sectors reported growth in new orders and production.
As manufacturers navigate these turbulent times, their focus on strategic adjustments is crucial. While the current data may present challenges, the potential for recovery remains as sector balances adjust towards growth.
Overall, the May report offers a mixed outlook but does carry some signals that the manufacturing sector could see improvements if the current trends continue toward stabilization and eventual growth in orders and production.